Assignment: Basics of Compounding
Carlos goes to the bank to take out a personal loan. The stated annual interest rate is 12%, but interest is compounded monthly and he will make monthly payments. The effective annual interest rate (EAR) of the loan is less than 12%. Your Answer | | Score | Explanation | False | ✔ | 5.00 | Correct. You understand compounding. | Total | | 5.00 / 5.00 | |
Question Explanation
Basics of compounding.
Question 2
(5 points) Ranjit began setting aside $6,000 per year in a mutual fund at the age of 25. He has turned 34, and has just made a deposit. The mutual fund has returned 6.5% annually. How much does Rajit have in his account today? Your Answer | | Score | Explanation | 80967 | ✔ | 5.00 | Correct. You know how to calculate the FV of an annuity. | Total | | 5.00 / 5.00 | |
Question Explanation
Basic FV calculation. He should have a minimum of $60,000. Why?
Question 3
(5 points) Mohammad has just turned 21 and now has access to the money his parents have been putting away in an account for him since he was 5 years old. His mother has asked him to guess what his account is worth given that they have invested $1,000 every year in the account starting on his 5th birthday and have just made one. The interest rate on the account has been 3.5% annually. How much is Mohammad’s account worth today? (Enter just the number without the $ sign or a comma; round off decimals.)
Answer for Question 3
You entered:
Your Answer | | Score | Explanation | 193141 | ✘ | 0.00 | | Total | | 0.00 / 5.00 | |
Question Explanation
FV value of an annuity calculation. Draw a time line. The amount should be a minimum of $17,000.
Question Explanation
Basics of compounding.
Question 2
(5 points) Ranjit began setting aside $6,000 per year in a mutual fund at the age of 25. He has turned 34, and has just made a deposit. The mutual fund has returned 6.5% annually. How much does Rajit have in his account today? Your Answer | | Score | Explanation | 80967 | ✔ | 5.00 | Correct. You know how to calculate the FV of an annuity. | Total | | 5.00 / 5.00 | |
Question Explanation
Basic FV calculation. He should have a minimum of $60,000. Why?
Question 3
(5 points) Mohammad has just turned 21 and now has access to the money his parents have been putting away in an account for him since he was 5 years old. His mother has asked him to guess what his account is worth given that they have invested $1,000 every year in the account starting on his 5th birthday and have just made one. The interest rate on the account has been 3.5% annually. How much is Mohammad’s account worth today? (Enter just the number without the $ sign or a comma; round off decimals.)
Answer for Question 3
You entered:
Your Answer | | Score | Explanation | 193141 | ✘ | 0.00 | | Total | | 0.00 / 5.00 | |
Question Explanation
FV value of an annuity calculation. Draw a time line. The amount should be a minimum of $17,000.